U.K. Defense To Face Cuts Over Next 2 Years

Dec. 5, 2012 - 11:41AM
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In an image grab from pooled video footage taken Dec. 5, British Chancellor of the Exchequer George Osborne (left) delivers the autumn budget statement in the House of Commons in central London as British Deputy Prime Minister Nick Clegg (right) listens. (AFP / pool)

LONDON — British defense spending is to be cut again over the next two years as part of additional austerity measures announced Dec 5 by the chancellor in Parliament. To offset the impact of the cuts, the Treasury is to allow the Ministry of Defence to roll over unspent funds from this year to 2013.

Chancellor George Osborne in his annual autumn budget statement said that MoD would be among a number of government departments that would have to implement a 1 percent resource budget cut in the financial year 2013 and a 2 percent reduction the following year. Capital budgets are unaffected.

A Defence Ministry spokeswoman said the Treasury approval to roll over funds from one year to the next applies only to the current financial year’s underspend but that negotiations were going on to extend the deal.

“We have authorization from the Treasury to carry over all the currently forecast underspend. As yet, this applies only to this year’s underspend — we are in ongoing negotiations with the Treasury about future years. It is worth noting, however, that this arrangement is in part a consequence of the greater discipline that we have applied to our financial management in recent years, which has improved our relationship with the Treasury. We hope that if we continue to demonstrate this financial discipline then they will continue to grant us greater budgetary freedom,” she said.

Treasury figures show the cuts will reduce the resource budget by 245 million pounds ($394.5 million) next year and 490 million pounds in 2014. The resource budget covers expenditure on items such as infrastructure and personnel costs rather than equipment programs.

The spokeswoman said that despite the reductions, the MoD expected to be able to implement the 735 million pounds of cuts without impacting equipment or military personnel plans.

“Because the MoD has, for the first time ever, included annual ‘unallocated provisions’ in its budget, and because of exceptional flexibilities agreed with the Treasury, these reductions can be absorbed without impacting on planned military manpower totals or the core defense equipment program in 2013/14 and 2014/15,” she said.

The new reductions come on top of a nearly 8 percent cut imposed on British defense spending covering the period 2011 to 2014 and the axing of dozens of equipment programs and capabilities to reduce a 38-billion-pound black hole in unfunded commitments over the decade.

The budget cuts, though, are back loaded with total spending reducing from 34.3 billion pounds this year down to 34.1 billion pounds next year and 33.5 billion pounds in 2014. Equipment spending, though, actually is planned to go up over the same period.

Defense analysts here said the government’s acknowledgement that austerity measures in the U.K. would now extend to 2018 puts a question mark against a planned 1 percent real term increase in equipment spending from 2015.

Osborne said that while the MoD would be included in the department cuts, they would be “given flexibility on their multiyear budget to ensure that this will not lead to reduction in military manpower or the core defense equipment program over [the life of] the Parliament.

Previously, government rules were that the MoD had to use or lose the money over the duration of the financial year, leading to a scramble by procurement officials to spend any unallocated cash.

Last year, the underspend allowed the MoD to purchase an extra Boeing C-17 airlifter and other equipment. This year, in the face of a potentially major underspend, estimated by industry executives at more than 800 million pounds, the MoD has already started awarding contracts for the purchase of additional armored vehicles, precision-guided bombs and other capabilities to significantly reduce the amount.

“We have agreed to a unique arrangement with the Treasury ... we have secured extra ‘end year flexibility,’ which allows us to roll forward the underspend into next year’s budget. So instead of having to rush to spend money by the end of the financial year as happened in the past — a hugely inefficient way of procuring defense equipment — we can now roll that money forward into the following year,” said a MoD spokeswoman.

“The so-called underspend is money that has already been allocated for specific [mostly equipment] projects but which hasn’t yet been spent because of a variation in the rate at which we needed to spend the money. But it’s money that will still be spent as originally intended, just in a different financial year — and we now have the flexibility, thanks to the Treasury, to do that,” said the spokeswoman.

In other moves, the chancellor also announced a 25 percent increase in funding for UKTI, the arm of the Business Department, which is responsible for the Defence Security Organisation, the military exports arm of government.